Relative strength index is the name of the index introduced by j. Welles Wilder June 1978 on an issue of the magazine "Futures" (formerly known as "commodities"). Then also presented the 1978 in his book "New concepts in technical trading". The relative strength index is designed to measure the dynamics of price action and it ranges between 0 and 100. As we shall see in the formula, the index tracks the value in itself and, therefore, is a measure of speed.
As the relative strength indicator is an indicator of front-weighted momentum that measure the price performance compared with the past, gives a more accurate indication of other indicators. It is less affected by large and steep price drops-i.e. that filters out certain trading noise.
It is a big question to address after you start using such relative strength index "what time should I use?". Original proposal Wilder was to use a 14-day RSI, but nowadays they can be optimized with brute force using software like MetaTrader, etc.
The RSI values range from 1 to 100. Traditionally, anything above 30 would buy a brand image that anything above 70 should trigger a signal to sell. Many analysts use also 20 for long signals and 80 for short signals. As price levels, the relative strength index technical analysis is offered as support/resistance, moving average convergence divergence, etc.
It is noteworthy that relative strength index is a measure of momentum, i.e. whether the currency is overbought or oversold. There is a direction indicator trend per se. Indicate only if the trend is likely to reverse or not.
Overbought is in a bullish market when they buy the currency players with a view that prices will continue higher. Sooner or later, merchants will have accumulated several long and will start selling them back to their cash winnings. This can cause a sudden reversal of trend, as many sales people trying the same simultaneously.
Oversold is in a bearish market where players can sell the currency which is expected to fall further. Same as the overbought condition, at some point they will have accumulated in the short term and will look to buy them back. Everyone is trying to do the same thing at the same time can lead to a sudden reversal of trend.
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